Ratios, percentages, margins: What do they all mean?

FFAGENTS

We have been addressing groups with the results of our 2012 S.D. Annual report in the past weeks. A great deal of information is compiled in this book by the instructors working with their individual farms to complete a whole farm analysis. Today I would like to refer to a few of the many calculations that are done in the FinPack analysis program for our participants.

Working Capital: Current assets-current liabilities. Avg. farm $504,207. This tells us the capital available in the short term from within the business. Ex. If you sold all your crop/feed/market livestock inventories and paid your short term debt obligations, this is the $ amount that would remain.

Working Capital to Gross Revenue: This measures the operating capital available against the size of the business, whereas the working capital dollars figure is just a number and each operation requires different levels to achieve a favorable ratio. Avg. farm 43.7%. Over 25% is considered satisfactory, but the higher the better to withstand an unforeseen event in the upcoming year.

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You may ask what is unforeseen, isn't anything against my bottom line that? Unforeseen events are things that you have little or no control over, and you should not allow yourself to blame such a situation on yourself. This would be drought, flooding, hail, disease outbreak, or the devastating out of season storms we've had this calving season. The key is how you've prepared, and even more so, how you will react to these events that has a lasting effect on you and your operation. You can't control the weather, but you can control your reaction. I found an excellent article on this subject the past week addressing how anxiety affects us in agriculture. Also a website: http://www.agbehavioralhealth.com. You may contact me for any information regarding the above topics. As I tell the folks I work with many times, I've been there, done that. Like so many things in life, recognizing a problem is the first step to fixing it. Use the tree planting mindset in giving this some consideration.... The best time to plant a tree or address a problem was 20 years ago, but the next best time is today! Watch for more annual report news releases, and we will also address more of the financial ratios in future articles. Our website is http://www.mitchelltech.edu/sdcfrm.